LEIGH SALES, PRESNTER: South Australia is turning its back on the national energy market after months of blackouts and record price spikes. The state will spend $500 million to go it alone, building its own gas-fired generator in a desperate bid to regain control of its power system, and give customers some relief from high prices.

It'll be one of the most radical shake-ups in the network's 20-year history, and the rest of the nation will be watching what happens with bated breath.

Alex Mann reports from Adelaide.

ALEX MANN, REPORTER: Making glass is a power-hungry business, and the unexpected blackouts can break it.

EAMONN VEREKER: Our furnaces are running at a temperature of about 1,200 degrees C. By cooling down, they do a lot of damage in cracking the furnaces, et cetera. Plus, it takes days to bring them back up again in temperature. So, you do a lot of damage when you have power failure.

ALEX MANN: When the power went out last December, Eamonn Vereker faced a $10,000 bill to fix his furnace. It was the second time in just two months.

EAMONN VEREKER: When that happened, all my staff had to go home. All my interstate orders had to be cancelled for a few days. And then we had to do a rebuild early new year, which did cost all that money. And if that was to happen again, it would put me out of business, basically.

ALEX MANN: Since a storm toppled transmission lines last September, the fragility of South Australia's power supply has been at the forefront of the national energy debate. For six months, blackouts and radical power price spikes have put the focus squarely on how the state, and the country, plans its transition from coal-fired power to renewables.

DAVID BLOWERS, ENERGY FELLOW - GRATTAN INSTITUTE: South Australia is very much the canary in the coalmine for Australia, but it's also the canary in the coalmine for the rest of the world. It has one of the largest penetrations of renewable energy anywhere in the world. And so this is very much an experiment to see how much intermittent renewables, in particular, wind and solar, can help support an electricity system.

ALEX MANN: Most days, South Australia derives more than 40% of its power from wind and solar. And since its last coal-fired plant was closed last year, it's placed huge market power in the hands of just a few gas generators. And South Australia says it's at the mercy of a commercial market that favours generators over power users when energy is scarce and prices climb.

JAY WEATHERILL, SA PREMIER: The truth is that this National Electricity Market is broken, because nobody wants to invest in new generation. And we've accepted that. We've accepted that that's the reality. What we've done is step up and are retaking our control of this National Electricity Market in South Australia's sense. So we're making our own investment in generation.

ALEX MANN: Today, South Australia's Government unveiled plans to build a $360 million backup gas generator, and what it says will be the biggest battery storage facility in Australia.

JAY WEATHERILL: Today, South Australia takes control of its energy future. We have a National Electricity Market which is failing not only South Australia, but failing the nation.

ALEX MANN: Premier Jay Weatherill says his Energy Minister will now have new powers to intervene directly in the market, giving him the ability to order existing private gas generators to switch on.

DAVID BLOWERS: This is a massive vote of no-confidence in that market operator, given the fact that the Energy Minister in South Australia now has the, or will have, the overriding power to decide when generation comes on and off, and how much generation they're going to have coming through that thin connection with Victoria.

JAY WEATHERILL: Our clean, green, renewable resources...

ALEX MANN: David Blowers is an expert in energy markets, and was watching today's announcement closely.

DAVID BLOWERS: It's fine to build a new gas-fired generator, but where's the gas coming from? At the moment, we're looking at gas shortages from next year onwards, and that has to be dealt with.

ALEX MANN: High power prices are directly related to the gas shortage. The SA Government today offered incentives for new exploration and extraction, and promised land owners 10% of any eventual royalties. It's a move welcomed by the gas industry.

MALCOLM ROBERTS, APPEA: I think it's a very well-considered plan from the South Australian Government, and we particularly welcome its recognition that gas is an essential part of the energy mix. Plenty of people in South Australia need to have a sense of confidence around their energy supply, particularly businesses that are looking to make investments in South Australia. So, hopefully this will be a medium-to-long-term solution for South Australia's energy problems.

JOSH FRYDENBERG, FEDERAL ENERGY MINISTER: Today, Jay Weatherill made a $550 million admission of failure. Going it alone created South Australia's problems, and going it alone won't fix South Australia's problems. In fact, the measures announced today will only increase electricity prices for South Australians, and has the potential to increase prices for Victorians, for people in New South Wales, and in Tasmania.

DAVID BLOWERS: The danger, from a Federal Government's point of view, is that the states are just going to go off and do it on their own. The role for the Federal Government and the Federal Opposition is to get together and come up with a sensible climate change policy that interacts with our energy market and actually can deliver the investment we need in the future. Otherwise, we're going to see more intervention by state governments.

ALEX MANN: Tomorrow, the Federal Energy Minister and PM will meet with the heads of the country's biggest gas producers. They're desperate to shore up gas supplies for domestic use, and avoid another power-price crisis.

JOSH FRYDENBERG: We're seeing in situations, for example in Victoria and, indeed, South Australia, where gas which was meant for the domestic market has been now exported to Queensland and off to Asia.

ALEX MANN: Whatever happens, for business owners like Eamonn Vereker, a solution to high power prices couldn't come soon enough.

EAMONN VEREKER: I'm paying enough of money to buy that power, and I'm paying a lot of money to buy that power. So I expect that power to be there when I need it. Surely... Surely, as a nation, we should have that.